Why Private Equity’s High CEO Turnover Rate is a Systemic Issue, According to Lee McCabe

In a recent LinkedIn post, Lee McCabe argues that the high rate of CEO replacement in private equity (PE)-backed companies is not primarily a reflection of poor CEO performance, but rather a systemic issue rooted in flawed selection processes and conflicting board expectations. McCabe, drawing on his observations of the industry, contends that the statistic – where nearly 70% of PE-backed CEOs are replaced during the average hold period – should prompt greater introspection within the private equity sector itself.

McCabe challenges the common assumption that these replacements indicate a failure on the part of the CEOs. Instead, he posits that the selection process is the real culprit.

“If the selection process keeps producing the same failure pattern, perhaps the selection process deserves a moment under the lamp.”

The Contradiction Factory: Conflicting Mandates for PE CEOs

According to McCabe, PE-appointed CEOs often find themselves navigating a landscape of contradictory demands from various stakeholders. He describes this environment as a “contradiction factory.” Boards, deal teams, lenders, founders, operating partners, and chairmen all present distinct, often conflicting, objectives. This creates an untenable situation for the CEO, who is expected to achieve transformation, preserve momentum, accelerate growth, protect cash, maintain culture, fix pricing, and be bold – all simultaneously.

McCabe elaborates on the inherent tensions:

• “They are told to move fast, but not upset management.”
• “Upgrade talent, but avoid disruption.”
• “Invest for growth, but hit the budget.”
• “Professionalise the business, but keep the entrepreneurial spirit, which usually means preserve whatever weird operating habits made the founder successful while removing only the annoying bits.”

This complex web of expectations, as McCabe points out, leads to a CEO who is set up for failure from the outset.

Hiring for the Wrong ‘Theatre’

While acknowledging that some CEO failures are due to individual misfit, McCabe emphasizes that private equity firms frequently hire for the wrong reasons, or as he puts it, for the “wrong theatre.” He identifies a pattern of prioritizing factors that are less critical for long-term success over those that truly matter.

“Board presence over company fit. CV polish over cultural read. Transformation language over operating judgement. Familiarity over relevance.”

In McCabe’s view, this focus on superficial qualifications or perceived prestige over genuine operational judgment and cultural alignment is a significant driver of the high turnover rate. He suggests that the industry often prioritizes a polished resume or a strong board network over a deep understanding of the specific company’s needs and the CEO’s ability to navigate its unique challenges.

The Path to Better CEO Selection

To address the persistent issue of CEO replacement, McCabe advocates for a more rigorous and honest approach to CEO selection. He argues that the best hires begin with “brutal clarity” regarding the fundamental requirements of the role and the context in which the CEO will operate.

Key Elements for Effective CEO Hiring:

1. Defining precisely what must change and what must remain constant within the company.
2. Clarifying who holds ultimate authority on key decisions.
3. Identifying the specific areas where the board is willing to tolerate risk and where it is not.
4. Establishing the support structure that will be in place for the CEO from day one.

Until private equity firms adopt this more transparent and rigorous selection methodology, McCabe concludes, the high CEO replacement rate will continue to serve as “a very expensive mirror” reflecting the flaws in their own processes rather than solely judging the capabilities of the CEOs they appoint.